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Dominion/Rio increase Diavik diamond reserves but predict falling production

by Greg Klein | March 6, 2015

Joint venture partners Rio Tinto NYE:RIO and Dominion Diamond TSX:DDC have boosted Diavik’s reserves by more than 12%, the latter company announced March 6. Four pipes plus a stockpile at the Northwest Territories mine now hold 53.3 million carats of diamonds, compared to 46.8 million carats at the end of 2013.

Project operator Dominion has a 40% stake, with Rio holding the rest. A breakdown of the reserve shows:

  • proven: 13.1 million tonnes averaging 3 carats per tonne for 39.6 million carats

  • probable: 5 million tonnes averaging 2.7 c/t for 13.7 million carats

  • proven and probable: 18.1 million tonnes averaging 2.9 c/t for 53.3 million carats
Dominion/Rio increase Diavik reserves but predict falling production

Even with a new pipe scheduled for production, Diavik will
see declining annual output until its closure in 2023.

Those numbers include the A-21 pipe, slated for 2018 production. The pipe contributes proven and probable amounts of 3.7 million tonnes averaging 2.7 c/t for 10 million carats.

A-21 also shows an indicated resource of one million carats. The four pipes have inferred resources totalling 8.3 million carats.

Dominion anticipates 2015 production to reach 6.89 million carats. But gradual annual declines, even with A-21 coming online in 2018, would reduce annual output to 5.75 million carats in 2022, before a sudden fall to 1.9 million carats in 2023, the mine’s scheduled shutdown year.

The company also offered average price projections of $135 per carat for the A-154 South pipe, $180 for A-154 North, $95 for A-418, $135 for A-21 and $45 for coarse ore rejects. Various sources estimate global averages between about $100 and $120 per carat.

In late January Dominion released a pre-feasibility study for the Jay pipe, “the most significant undeveloped deposit at the Ekati diamond mine due to its large size and high grade.” Average prices, however, were projected at only $86 per carat.

Jay shows a probable reserve of 84.6 million carats and additional resources of six million carats indicated and 8.6 million inferred. The pre-feas foresees an after-tax NPV of US$610 million and after-tax IRR of 16%.

The standalone open pit would keep the existing plant busy for 11 years beyond Ekati’s projected shutdown in 2020.

Dominion holds 88.9% of Ekati’s Core zone, which hosts the current mine and other kimberlites, and a 65.3% interest in the Buffer zone, which includes the Jay and Lynx pipes.

Ekati and Diavik make Dominion the world’s third-largest diamond-producing company by value. The two mines are located in the NWT’s Lac de Gras region, about 300 kilometres northeast of Yellowknife. The region’s also home to De Beers’ Snap Lake diamond mine and the De Beers/Mountain Province Diamonds TSX:MPV Gahcho Kué JV. Considered the world’s largest diamond development project, Gahcho Kué has production scheduled for 2016.

Spurred on by positive supply/demand forecasts as well as the region’s geology, several juniors have turned Lac de Gras into a busy exploration play. Even if De Beers’ Victor mine in Ontario isn’t considered, Lac de Gras ranks Canada third for global diamond production by value.

Read about diamond supply and demand.

Read about diamond mining in Canada.

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